Is This a Good Time to Invest?

Here’s a recent question I had from an emailer, and my response is below:

Hi Eddy,

I’ve been reading your website off and on for the past couple of years and really find your site to be full of good information. I haven’t had money to invest in the market up until now and was looking into buying a few stocks. Since the market is at a high point right now a few people have cautioned me that it probably isn’t a great idea to invest now since the market could come crashing down.

I was wondering what your opinion on the market is and whether you thought it would be a bad idea to invest now or your opinion on if there ever is a so called “good time to invest”. Is it always a good time to invest as long as you make good stock choices?

Thanks for the help

Thanks for the kind words. Despite the big run-up in stock prices, I still think this is a good time to be in stocks. Of course, it greatly depends on which stocks you’re in, and I favor the high-quality stocks on my Buy List.

The argument for stocks is very simple, and it comes down to math. Right now, Wall Street expects the S&P 500 to earn $123 next year (that’s the index-adjusted figure). That means the stock market is currently going for 13.7 times next year’s earnings. Or you can say that the market has an earnings yield of 7.3%.

There’s nothing in the bond market close to 7.3% at the moment. The furthest-dated US Treasury will yield you 3.7%, and higher-rated corporates run around 4.4%. That’s a pretty big gap, and much wider than I think can be justified due to a risk premium. Stocks offer the best bang for your buck.

Although my Buy List is always 100% invested in stocks, there are times where I think it’s wise to put money in cash or invest in more defensive stocks. In the last 15 years we’ve seen the stock market get cut in half, not once but twice. That’s a fact of investing. Bad things will happen. Not can, but will. Investors should be prepared for that.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 seven times in the last eight years. (more)